New client hasn't filed last 6 years - what are my responsibilities

[Judy rocks]

I have a new client meeting. The client hasn't filed for 6 years and now wants to get back on track with the IRS. A few years she may not have been required. Am I required to have her file all back 6 years tax returns - excluding the ones where she wasn't required to? Does Circular 230 address this? Where might I look to for guidance here?

[appelman]

No statute of limitations

There is no statute of limitations on unfiled returns. But you can set your own limitations as to what you do for her. If it were my client. I would go ahead and do it, assuming that between IRS transcripts and the information that she has, you have enough to prepare an accurate return. I have had clients with 10 years of back returns to complete!

[taxea]

1. since this is "compliance" work get a retainer that will cover your normal prep fee for the unfiled years.
2. prepare the returns and have TP send them via certified mail to the IRS
3. if the TP owes for any of the years have him/her make voluntary monthly payments designating on the memo line that the payment is for the most current year
4. after the TP has received notice from the IRS for each year filed you can then go forward with an Installment Agreement or OIC
5. if you are going forward get another retainer to cover the additional work

[Roberts]

I have a new client meeting. The client hasn't filed for 6 years and now wants to get back on track with the IRS. A few years she may not have been required. Am I required to have her file all back 6 years tax returns - excluding the ones where she wasn't required to? Does Circular 230 address this? Where might I look to for guidance here?

Instruct them of the possible fees, penalties and interest for not filing if required to do so and a tax return was required. Those tax amounts due can rack up some significant penalties and interest and you need to inform them of that. That is the extent of your obligation.
There isn't a secret requirement that you'll get a penalty if you don't force a client to file a past tax return.
The client is required to file a past tax return if they meet certain thresholds and or a tax amount is due.

I had a client who hadn't filed a tax return in about 6 years yet he'd made estimated tax payments the entire time. When we did the 6 years, he had a tax refund the first year that we rolled forward and it covered his tax due the other 5 years.
I have another client who has filed her taxes every year but hasn't paid the tax amount due in probably 8 years. She owes the IRS a massive amount of money.

[Lion]

Roberts described it perfectly. You have an obligation to inform your client of his responsibilities and the consequences of not filing. And, putting numbers to it helps. As a practical matter (or CYA) you can put your suggestions in writing and have him sign that you explained his responsibilities and consequences to him.

[DonB]

I have another client who has filed her taxes every year but hasn't paid the tax amount due in probably 8 years. She owes the IRS a massive amount of money.

Has the IRS tried to seize assets or garnish income streams?

[rkhan71]

Filing for 6 years...

Usually when the IRS secures knowledge of non-filing, they will request 6 years of filing as most appropriate. They can request more, but it is practical for "all" parties concerned to look at the last 6 years. Most taxpayers can get their hands on information going back that far. But not always; anything longer than that is difficult to secure information for. So, 6 years is a rule of thumb for practicality. Therefore, advise as necessary, to file 6 years lest a revenue officer will be contacting the taxpayer. But, this depends on what income circumstances are, all things being considered.

Ray

[TaxGuyBill]

I had a client who hadn't filed a tax return in about 6 years yet he'd made estimated tax payments the entire time. When we did the 6 years, he had a tax refund the first year that we rolled forward and it covered his tax due the other 5 years.

How did you get it to 'roll forward'? I didn't think there was ANY way to get refunds after 3 years (except maybe for NOLs and worthless stock).

[Roland Slugg]

I will address the primary question you asked, which pretty much echos what Roberts has already written.

Am I required to have her file all back 6 years tax returns - excluding the ones where she wasn't required to?

Since this woman has come to you for advice, if you wish to accept her as a client, your first responsibility is to advise her to file all required returns. You should also recommend that she pay all taxes due, and explain that the IRS will then bill her for accumulated penalties and interest. If she asks you to prepare those returns, and you are willing to do so, get them done as soon as possible and deliver (or hand) them to her. You can not force her to actually file them. That is her responsibility, not yours. Presumably, she wants to get caught up, though, and that's why she contacted you. However, if she only wants you to prepare some, or even just one of the six years' returns, there is no ethical reason why you can't do so. This could be risky, though, because there could be something in one of the prior year returns that would affect a later return, such as a capital loss carryover. If this were my new client, I would probably not accept a piecemeal engagement.

If you do prepare the returns, I would recommend that she mail all of them together in the same envelope along with a transmittal letter which you can draft for her. That letter should explain that several past-due returns are enclosed and request that they be processed together. Include a list of the six years, something like the following:

2008 -- Return enclosed showing tax due in the amount of $xxx
2009 -- No return was required to be filed ... gross income below the filing threshold and no tax due
2010 -- Return enclosed showing tax due in the amount of $xxx
2011 -- No return was required to be filed ... gross income below the filing threshold and no tax due
2012 -- Return enclosed showing tax due in the amount of $xxx
2013 -- Return enclosed showing tax due in the amount of $xxx

If she can send checks (one for each year there is tax due) along with the returns for the full amount of tax due, that would be best. If she can't, she should send as much as she can. In another response one person recommended that she pay a little towards each year, but I don't see how that makes any difference. If less than the full amount due is submitted with the returns, I believe the IRS will apply the payment(s) to the oldest balance anyway.

An alternative to the above would be to mail each return separately, along with a check for the balance due for that return. I prefer the group mailing, however, because than she can include that transmittal letter listing all six years and why no return was required for some of them.

Do the same thing for her delinquent state returns, if applicable.

Others have offered advice here regarding things like how to handle your fees and other matters you didn't ask about but might find helpful. I concur with the advice that you write the woman a letter or memo summarizing your advice and outlining what you will do for her.

[buzzardbreath]

Yes but it depends.

How did you get it to 'roll forward'? I didn't think there was ANY way to get refunds after 3 years (except maybe for NOLs and worthless stock).

Yes but it depends (a good answer to any tax question by the way).

You can't get any REAL MONEY out of a return more than three years, however in some cases, you can offset tax liabilities from some years with overpayments from other years if all of them are over the statute. Also the clock on the three year statute is preserved if the IRS has questioned or made an assessment. If the IRS blows the whistle within three years, the clock is extended until such time as they are made happy.

[TAX4US]

TP has completed 4 years filings. Between all 4 years not counting P&I tp owes 110k. Has not sent them in yet. Service has not contacted. Best way to proceed at this point is? What do you think?

[ATSMAN]

I was told by an IRS agent to NOT send multi-year tax returns in one envelope because of the way they process paper returns. Any cover letter that you send will most likely be lost in the shuffle. If the taxpayer is under audit, contact the examiner and send them the returns they want.

This year I just did a new client's last 3 years that were under audit and mailed them to the examiner. I then followed up with a phone call and it worked out as expected.

[buzzardbreath]

Sluggo and Atsman

A question for you as far as mailing multiple years or singular years, I'm going to assume there is just a difference of opinion between you fine gentlemen.

However, the question is WHERE do you file a delinquent tax return? Assume the collection division is ready to put your client in the electric chair and the instructions on their levy letter instructs him (her) to send the return back to the address of the collection letter.

Right or wrong, I don't do this. I provide the client with the address where returns should be sent, and ignore the instructions on the letter.
Positives: A collection officer knows that the return has been filed and some determination will follow. Negatives: The collection division does not process returns, in fact, they tell me they CAN'T process a return. This means they have to send it somewhere else.

Either way, the collection officer will grow impatient because the IRS is so far behind processing returns that the collection division cannot allow the levy action to grow stale. Big problem. Once I had an old return held up for nearly two years.

[ATSMAN]

I follow the instructions in the audit or notice to levy letter and try to make contact with the examiner or agent assigned to the case. In the normal course of filing i agree it should be mailed to the IRS address of your jurisdiction but when a return is under examination I follow the instructions in the notice simply because I know that if the return is not received at the address in the instruction letter, we are going to face a very unhappy examiner, something we can't mess with at this point.

I have had the pleasure of dealing with a few "friendly and understanding" agents when i followed their instructions. In one case few years back the mileage log was messed up and taxpayer could not account for roughly 2000 miles if it was partially personal or 100% business.The agent agreed with the mileage on the return and just warned the taxpayer to do a better job in the future.

[taxea]

I will address the primary question you asked, which pretty much echos what Roberts has already written.Since this woman has come to you for advice, if you wish to accept her as a client, your first responsibility is to advise her to file all required returns. You should also recommend that she pay all taxes due, and explain that the IRS will then bill her for accumulated penalties and interest. If she asks you to prepare those returns, and you are willing to do so, get them done as soon as possible and deliver (or hand) them to her. You can not force her to actually file them. That is her responsibility, not yours. Presumably, she wants to get caught up, though, and that's why she contacted you. However, if she only wants you to prepare some, or even just one of the six years' returns, there is no ethical reason why you can't do so. This could be risky, though, because there could be something in one of the prior year returns that would affect a later return, such as a capital loss carryover. If this were my new client, I would probably not accept a piecemeal engagement.

If you do prepare the returns, I would recommend that she mail all of them together in the same envelope along with a transmittal letter which you can draft for her. That letter should explain that several past-due returns are enclosed and request that they be processed together. Include a list of the six years, something like the following:
If she can send checks (one for each year there is tax due) along with the returns for the full amount of tax due, that would be best. If she can't, she should send as much as she can. In another response one person recommended that she pay a little towards each year, but I don't see how that makes any difference. If less than the full amount due is submitted with the returns, I believe the IRS will apply the payment(s) to the oldest balance anyway.

An alternative to the above would be to mail each return separately, along with a check for the balance due for that return. I prefer the group mailing, however, because than she can include that transmittal letter listing all six years and why no return was required for some of them.

Do the same thing for her delinquent state returns, if applicable.

Others have offered advice here regarding things like how to handle your fees and other matters you didn't ask about but might find helpful. I concur with the advice that you write the woman a letter or memo summarizing your advice and outlining what you will do for her.

Roland, the IRS has repeated said to send each year separately. Apparently they don't have the ability to separate returns when they are all sent in one envelope